Patriot Coal Lowers Production

Bowing to the pressures of the sluggish market demand for coal, Patriot Coal Corporation (:PCX) decided to lower the production of thermal coal. As a result, the company’s Freedom underground mine will remain idle. The mine, located in the Bluegrass complex in Illinois Basin, had produced 1.2 million tons of thermal coal in 2011.

Subsequent to the production cut, there will be no uncommitted Illinois Basin thermal coal delivery for Patriot Coal in 2012. Idling of Freedom underground mine follows the idling of three other Central Appalachian thermal coal mines, which collectively produced 1.2 million tons of thermal coal in 2011, in the first quarter of 2012. Idling of these four mines along with the shut down of Big Mountain mining complex in February 2012, will lower the company’s 2012 total thermal coal production by 4 million tons.

Declining prices of natural gas along with lower demand for electricity is causing softness in the demand for coal with a mild winter adding to its woes. Therefore, in an effort to maintain a balance between demand and supply, the company resorted to shutting down or keeping the mines idle.

Beginning 2012, Patriot Coal announced the idling of one contractor-operated mine and two subsidiary-operated production units in the Rocklick complex, besides idling two contractor-operated mines in the Wells complex. These mines are in the Appalachian basin producing metallurgical coal.

The company had guided lower sales volume in 2012 compared with 2011. In 2011, the company’s sales volume was 31.1 million tons while guided 2012 sales volume is in the range of 27 – 29 million tons.

Patriot Coal is scheduled to announce its first quarter results on April 26. The Zacks Consensus Estimate for the first quarter is currently pegged at a loss of 38 cents, wider than the loss incurred in the year ago quarter.

We have a Neutral recommendation on Patriot Coal. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.

Based in St. Louis, Missouri, Patriot Coal Corporation, is a leading coal producer in the eastern United States, having 13 mining complexes in Appalachia and the Illinois Basin. The company competes with peers like Alpha Natural Resources Inc. (ANR), Arch Coal Inc. (ACI) and James River Coal Co. (JRCC).